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LLC managers can be held individually liable for violations of Massachusetts Wage Act

Managers of a limited liability company who exerted sufficient direction and control over the financial policy of an employer could be individually liable for violations of the Wage Act, the Massachusetts Supreme Judicial Court ruled (Cook v Patient Edu, LLC, June 13, 2013, Duffly, F).

Under an employment contract signed by a manager and president of the employer, a limited liability company, the employee was to serve as director of business development and receive a base salary and guaranteed draw. After approximately 17 months, he resigned, claiming he had not been paid at all for the first six months and only “sporadically” thereafter. He filed suit under the Wage Act, G.L. c. 149, Sec. 150. When his claims against two managers of the company were dismissed, he appealed, and the Supreme Judicial Court transferred the case on its own motion to address whether each individual defendant was a “person having employees in his service” and subject to liability.

History of Wage Act. Beginning by tracing the history of the Wage Act, the court first looked at Sec. 148, which requires every “person having employees in his service” to pay those employees their wages at specified intervals. It specifies that the president and treasurer of a corporation, as well as “officers or agents having the management” of the corporation, are deemed to be employers. That section imposes liability on the president and treasurer of a corporate employer, as well as on an officer or agent of the corporation who “controls, directs, and participates to a substantial degree in formulating and determining policy of a corporation,” said the court. That same section also imposes individual liability for payment of wages on public officers “whose duty it is to pay money, approve, audit or verify payroll, or perform any other official act” regarding paying public employees.

The statute, however, doesn’t address managers of LLCs or managers of any other limited liability entity, which, the court reasoned, made sense as the LLC did not exist as a form of business entity in 1932 when liability on officers or agents of a corporation was imposed. The court pointed out that although unincorporated entities, including proprietorships and general partnerships, existed during that time, their owners were subject to liability for business debts, including unpaid wages. Only corporate owners were entitled to limited liability.

“Person having employees in his service.” Reading the statutory language on corporate officer liability and public officer liability as illustrative rather than exclusionary, the court interpreted it as exemplifying the circumstances in which an individual may be considered a “person having employees in his service.” The court discounted the maxim of statutory construction that the expression of one thing is an implied exclusion of other things based on its interpretation of legislative intent. By including corporate and public officer liability, the legislature made it clear its intent was “to ensure that individuals with the authority to shape the employment and financial policies of an entity be liable for the obligations of that entity to its employees.” No reasonable legislative purpose would be served by holding corporate officers liable but not the managers of other limited liability business entities, reasoned the court.

Further, a 2004 amendment to Sec. 148B, which provided that “[a]ny entity and the president and treasurer of a corporation and any officer or agent having the management of the corporation or entity shall be liable for violations of this section” did not change the court’s interpretation because it found no accompanying intent to change the meaning of the phrase “person having employees in his service.” Finally, the court distinguished its decision in Commonwealth v. Cintolo, in which it refused to impose criminal liability on a corporation’s president for a different violation of the Wage Act that notably did not contain a corporate officer liability provision. Criminal statutes must be strictly construed, the court cautioned, reiterating that the legislative intent here to hold individual managers civilly liable for violations was clear. Finding the claims against the individual defendants should not have been dismissed, the court remanded the case.

The case number is SJC-11272.